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MODEL FOR A MODERN MAJOR GENERAL: KEY CONSIDERATIONS FOR LOIs AND OPTION AGREEMENTS IN EXPLORATION DEALS

MODEL FOR A MODERN MAJOR GENERAL: KEY CONSIDERATIONS FOR LOIs AND OPTION AGREEMENTS IN EXPLORATION DEALS. Preliminary Considerations. basic business terms preliminary information. Strategic Considerations. rational timelines negotiate now vs negotiate later disclosure.

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MODEL FOR A MODERN MAJOR GENERAL: KEY CONSIDERATIONS FOR LOIs AND OPTION AGREEMENTS IN EXPLORATION DEALS

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  1. MODEL FOR A MODERN MAJOR GENERAL:KEY CONSIDERATIONS FOR LOIs AND OPTION AGREEMENTS IN EXPLORATION DEALS

  2. Preliminary Considerations • basic business terms • preliminary information

  3. Strategic Considerations • rational • timelines • negotiate now vs negotiate later • disclosure

  4. Poor Ol' Nugget - Act I, Scene 1

  5. LOIs – Binding vs. Non-Binding • binding preferable where: • commitment • certainty • disclosure • non-binding preferable where: • flexibility • speed

  6. Binding LOIs – Legal Risks • uncertainty • contract terms not fully addressed • reliance on common law • can prejudice • bargaining position • legal position/relationship

  7. Non-Binding LOIs – Legal Risks • can be abandoned • some terms should be binding • casual, no legal review • court may find binding • “morally” binding

  8. LOIs – Binding vs Non-Binding – How to Tell? • “test” • basic contract principles satisfied – did the parties agree? • are the “essential” terms agreed? • did the parties intend to be bound? • each case is fact specific • wording of LOI • actions of parties

  9. Non-Binding LOIs – Tips use conditional language don’t use imperative language leave key terms for later agreement include conditions state “non-binding” conduct of parties

  10. Poor Ol' Nugget - Act I, Scene 2

  11. LOIs – Drafting Considerations speed vs. certainty extent of representation approvals – corporate & regulatory termination notice mechanics effective date and impact on timelines

  12. LOI – Best Practices is priority timing or detail? be wary of obligation to negotiate in “good faith” standalone – exclusivity and confidentiality diarize dates check AOI for overlaps note issues that were problematic assess relationship/troubleshoot potential challenges no work on property (sorry!)

  13. Poor Ol' Nugget - Act II, Scene 1

  14. Moving from LOI to Option • remaining/outstanding due diligence issues • refer back to LOI best practices • consider representations and warranties • What needs to be customized • What needs to be covered • Old standards: singing the same old song

  15. Exercise of Option/Form of JV • exercising the option • Formal approach • Automatic approach • form of JV • All information: vegetable, animal and mineral • Substantially in the form attached • KoKo’s list • Worry about it later

  16. Poor Ol' Nugget - Act II, Scene 2

  17. Practical Issues • treatment of shortfalls • currency risk • transition matters • into JV • on terminating option • partial surrenders and additions • accelerations

  18. Best Practices decision tree as much ADR as you need, not as much as you can stand transaction summary databases debrief and capture process

  19. Conclusion • business/strategic analysis drives document • living documents • need to be flexible • certain • allow relationship to evolve

  20. FINALE

  21. Caroline ThomasChief Counsel, Exploration, Property & Aboriginal Affairs Vale, Base Metals 416-361-7919 (w) caroline.thomas@vale.com www.vale.com Carmen L. Diges, LL.M, CFAChair National Mining Group Miller Thomson LLP 416-596-2117 (w) cdiges@millerthomson.com www.millerthomson.com

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